tv Options Action CNBC April 7, 2013 6:00am-6:30am EDT
i love you, megan. now you stay safe. bye-bye. this is "options action." tonight, tech wreck. some of america's favorite tech names like apple and google are in the toilet. so, could yahoo be next? dan nathan says yes and he has a way to almost triple your money in just one month. he'll explain how. plus, talk about a sweet home trade. we have a way to how to make money. mr. the stock is up, down or nowhere at all. they'll break it down. and is mastercard maxed out? scott nations says no, and he's got a way to get long the stock for just $5. the actions begins right now. live from the nasdaq market site
in times square, i'm melissa lee. here are the traders here and in sunny los angeles. the dow and s&p recovering from a weaker than expected jobs report, but it's trouble in tech land that has this desk worried tonight. two of america's favorite stocks are in trouble. apple nearing a fresh 52-week low and perhaps more troubling, google, which had been one of the hottest stocks this year, nearing correction territory and having a very rough day. so, we asked tonight, is this a buying opportunity or is tech, in fact, in trouble? let's get in the money and find out right now. dan, you're bearish by nature, so, i'm guessing that you're worried? >> here is the thing. today apple was flirting with that 52-week low. it made a break to the end of the day, go down to $419. the 52-week low is $419. it made it a few weeks ago. and then it hold. google is a totally different story. google has been the beneficiary of apple's pain over the last few months. made a new all-time high last month and it since came off 7.5%.
the stock broke down through some important technical support. i don't think there's anything really that fundamentally interesting going on. other than maybe that facebook announcement yesterday. i think it shows that facebook is getting a bit more serious in social and mobile and so, to me, you know, that could have been one of the catalysts to cause the breakdown. >> mike khouw, i want to pose this question to you. is google in the phase before apple fell? google is one of the most owned stocks by hedge funds, investor favorite. are we in a honeymoon phase in google and now beginning to see the cracks that apple showed when it came off its all-time high? >> yeah, no, i think that's a great analogy, actually. it's interesting, because google, if you take a look at their earnings growth, doesn't seem that overpriced, though it is trading above average multiple for itself. you know, at about 24 times last 12 months earnings. the fact of the matter is, when stocks are so broadly owned and you see the valuations getting to these levels, you don't haves a lot of remaining buyers that can step in.
regardless of what the fundamental story is. and then you start seeing the weakness we saw in other spaces in tech. i think f-5 was an example of just how hard stocks can get hit this week when the news is disappointing. i think you do actually have more down side risk, though the long-term fundamental story is still intact. >> seems like all tech is under pressure. google, apple. we just named a few. we had some dismal data from the semiconductor industry, 9% year on year decline. >> that's right. >> cisco and intel down quite a bit more than the broad market today. and dan makes a good point about apple versus google. as people were selling apple, they were buying google. but google now has this big rounded top. it getting pretty ugly. option volume today in google was about double the daily average. unfortunately, a lot of those people are selling puts. so, i do think that there are a lot of options traders who do think that this is the bottom in google and they're selling puts to get long stock at a discount.
they're selling 750, 760 and the 800 strikes. the thing is, in this environment, i just don't want to be a put seller. works over time and if you have to own the stock, it's a neat strategy, but boy, if we wake up and google takes a big dive then you're really going to feel sick. >> mike, we saw pretty steep declines earlier in today's session, while we finish off of the lows of the session on the s&p, the nasdaq and the dow and for many of the sub end sis, as well. technology didn't participate. are you less optimistic about the ability of this market to stay near record highs without the participation in tech or are we making too much of it? because if we do have staples and we have discretionary participating, maybe we don't need technology. >> yeah, you know, i think that's a very good question. and the reason i think that's true is, let's take a look at those sectors that are driven by the broader economy. things like the commodities space, oil and gas. that was very hard hit this week, just behind it, materials and industrials. and just behind those was technology. that was -- these were the four weakest sectors this week.
what it's really telling us is that the broader economic story is not that good. financials are going to be propped up, essentially, by, you know, the purchases of passive financial assets and that drives those prices higher. and it think staples and discretionary are just a yield chase. a lot of those are high dividend paying stocks. so, this is really a broader economic story, i think, that we're witnessing and perhaps the next earnings cycle is going to bear this out. >> we all agree that technology is facing real headwinds. dan, in terms of specific stocks, which one are you thinking is the most vulnerable? >> you ask the question, what's next. to me, yahoo! is a very stock specific story. they have a new ceo in for the last nine months. a lot of optimism. came from google. a lot of optimism she was going to do things with their core business, which wasn't being valued for anything, when you stripped out their cash and their holdings. here, you have a situation where the stock has go from $16 to $23.25. that's not the case anymore. sum of the parts looks very different. yahoo!'s u.s. core business is
probably valued at pretty fair. so, to me, i think this is a really important time for marissa meyer here. she's going to have to show ways to fix their core business. and in a week where zuckerberg got out there and he's showing how they're getting in social and they're getting in mobile, what the heck is yahoo! doing? they have no -- >> are you positive facebook? >> no. >> is that part of the premise? >> no, i hated that home thing. i thought it was a disaster. but the point is, they don't have a plan, and i think the market is pricing it, as they do have a plan to fix the core u.s. business. i want to make a near term short-term bearish bet in the name. >> all right, so, what is dan doing? he's buying a put spread. a familiar stat. but always good to review. the playbook. in the strategy, you buy one put and sell a lower strike put to cut your costs. you do this when you're bearish, as dan is. you want that stock to go to the short put strike. that's where you make the most money. that's also where your profits are capped. so, dan, walk us through the trade. >> sure, so, i looked out to may. earnings are going to fall in april expiration, but this is not an earnings trade. this is a trade to kind of as
investors get a sense for marissa mayer, what her plans is, i think it's going to play out in the next month and a half or so. i bought the may $23.21 put spread for 55 cents. i bought it for 75 cents and against it i sold one of the may 21 puts at 20 cents. i profit between 22.45 and 21, i can make up to 145. my max gain is below that at 145 and i lose up to 45 cents between -- lose up to 55 cents, excuse me. between 2245 and 23 with my max loss 55 cents above 23. i like the risk reward. it's about risking one to make three. if the stock has a pull-back to a technical level, i think it can come back to, in a broad market selloff, or just some, you know, just some profit taking in the name. >> mike? >> yeah, you know, i -- first of all, we've said it many times before, i like the put spread structure. i think it makes a lot of sense. on a fundamental basis, i wonder, though, whether yahoo!
is really getting to a top point right now. this was a long time hedge fund favorite. a lot of people like this name and road it very painfully down. i don't know that like google it's quite overbought at this stage, so, i wonder whether that is -- still holds the stock up. but still, that suggests that if the market is going to go lower, you want to make a bearish bet. something like a put spread, it makes a lot of sense. >> just one more point here, you know, earnings growth and sales growth are supposed to be low single digits. for the next few years. the stock is trading at 20 times it's not cheap anymore. so, to me, i think this is one you can think about. >> all right, well, marissa meyer has done a couple of things, but they still don't have stocks versus options. you want to get short yahoo, you need shorting any stock has unlimited risk. dan's put spread is just a $55 risk. let move on here. despite the weaker than expected jobs report, the homebuilders eek out a gain. our next guest says there is a sweet opportunity to get short
on housing stocks. let's call to the charts with, speaking of homes, my new very raucous neighbor, as luck would have it, carter braxton worth. >> hi there, hi there. so, yeah, this is an important subject, because what's going on here is that the home builders, the number one theme in all markets for the last year, year and a half are starting to falter. the first chart i have is a five-year chart. it looks at the xhb, etf for all home builders, related to the s&p since the march '09 lows. this is where the qe gets aggress. qe 9. it's pulled away, it's doubled the performance of the s&p. now, let's look at a few home building stocks and then i want to make an inference. this is the xhb now on a more short-term basis, one year. and we are toying with the prospects of breaking the trend that's been in effect for the last two years. now, keep that in your mind's eye and look at two big stocks that are part of this aggregation. toll brothers, same trend and now the break is under way. take a look at the next one. mdc holdings.
same trend, break is now under way. these stocks are now massively underperforming the market. and here is the stock in question. we think this is a big break coming and would be very aggressive as short sellers. this is not good and it speaks a lot about what's coming for the stock market. >> not good, but it's been a very tough sector to short, mike, and i'm curious, if you look at the credit market, it's telling a different story. a lot of the bonds are trading at pre-2006 levels, mike, and yet they are rated as much lower levels at this point in time. >> yeah, you know, it's interesting, if you go back to this pre-credit crisis numbers for the home builders. if you look at pulte, their order backlog off 30% since 2007. the total value of their orders is off 50% since 2007. the average price of a home sale, down from $322,000 to the high 200s. every single metric when you
look at all of the home builders is significantly lower, except for two. the market capitalization of the company, 170% higher than it was in 2007. and the enterprise value is about 70% higher than it was in 2007. and all of this is being driven by the fact that people think that the company's broader margins, a function of lower labor costs because all of the people in the home building business were put out and low interest cost is going to last forever. i got news. it isn't going to last forever. >> all right, so, obviously, mike is bearish. he's selling a call spread tonight. usually we buy them, so, let's review how this works. this is a bearish strategy. you sell one call and define your risk you purchase a higher strike . call of the same expiration. in the structure, you want the stock to trade below that short strike by expiration. that's how you make the most money. above that strike, you will see losses, but they are capped at the strike of the call that you bought. so, mike, walk us through this trade. >> yeah, i mean, not willing to just short the stock, because they seem to want to go up with impunity. i want to limit my losses, if i'm going to make a bearish bet. what i'm looking to do here is sell the may 19 calls, collect a
dollar and buy the may 20s against it for 60 crepts. collecting 40 cents, risking 60. and even if it does rally up to that 20 strike or a little bit higher in the near term, i won't lose the full 60 cents and probably have an opportunity to revisit the trade. >> i think the interesting thing here is, mike says he's bearish, but this trade makes money even if the stock goes sideways, which is really important. as opposed to mike, i actually that i low interest rates are going to last for the foreseeable future. they're going to help this stock. but the interesting fact about this is, i don't want to be in a situation where i'm risking a lot to make a little and mike has got a trade that's almost a coin flip. not always the case when you sell spreads, but this one makes a lot of sense. again, i don't want to risk a lot of money right now to make a little. >> quickly, mike. >> yeah, i hear one quick thing, maybe low interest rates last for a little while, but the margins can't. we're going to have rising interest rates or rising labor costs. can't have both stay low forever.
>> got a question? send us a tweet, we'll answer on our website after the show. while you're there, check out scott's mastercard trade, in addition to our great blogs and educational material. here's what's coming up next -- >> why the long face? last month, a bullish bet on facebook, but the stock has been losing friends like crazy. they found a way to save face and they'll tell you how, when "options action" returns. time for pump up the volume. the names that are heating up options traders sizzle index this week. going once, going twice, sold. this company auctions millions of dollars of fine art, jewelry and more. and this week, the stock got a bid after it was upgraded from a hold to a buy. so options traders saw an opportunity to step up to the auction block, making bets that the stock is worth a pretty penny. who is it? the answer when "options action" returns. [ indistinct shouting ]
[ cows moo ] [ sizzling ] more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade. where were options traders pumping up the volume this week? sotheby's. at one point, call volume was nine times the average daily volume. welcome back to "options action." winner are great, but when trades don't work out, you just want to say, dude, fix my trade. a couple weeks back, a bullish bet on facebook. they haven't lost face yet and here's why.
on "options action"s, just because we risk less doesn't always mean we make more. and sadly, that's just what happened with khouw and carter's bullish bet on facebook. carter liked the look of facebook's chart. >> we would get involved, play for catch-up move in facebook. >> well, if carter likes it, mike thought, i'm in, too. but just buying the stock, 100 shares would set him back 2,800 bucks. so, to spend less, mike instead bought the may 29 strike call for $1.50. now, to make money, mike needs facebook shares to rise above that strike price by more than what he spent on that call. or, above $30.50 by may expiration. but wait. you're paying $1.50 just to get into facebook? >> are you kidding? >> mike, lean in and listen to sheryl sandberg. let's do this for less. >> selling the 32 call for another 60 cents. >> that's the spirit. so, to spend less money, mike then sold the may 32 strike call for 60 cents and now, between the $1.50 he spent on that lower strike call and the 60 cents he
collected by selling that higher strike call, mike's reduced the total cost of his trade to 90 cents. and now to make money, mike just needs facebook stock to rise above that $29 strike price my more than the 90 cents or above $29.90 by may expiration. but there is a trade-off. and by selling that call, mike has capped his profits to the difference between the strike of the call that he bought and the strike of the call that he sold. but he's not done yet, folks. because paying 90 cents to put on the trade is still too rich for mike's blood. so, to spend even less, mike then sold the may 25 strike put for 90 cents. now, between the $1.50 he spent buying the call, the 60 cents collected by selling the other call and the 90 cents he collected by selling that put, mike's put this trade on for free. that means mike now sees profits if facebook takes even a penny above that 29 strike call that he bought. >> that's cool. >> it sure is, sheryl. but remember that there's a trade-off.
because he sold that put, mike is now obligated to buy facebook stock for $25, even if it falls well below that level. and after initially falling 3%, facebook shares are flat since the time of the trade, meaning this trade is neither a winner or loser. but that hasn't stopped them from defriending each other on facebook or trashing one another on twitter. but between all the acrimony, guys, let's not forget about the trade, because our fans only have one question -- how will these two friends fix their trade? before we answer that question, you might be asking, why mess with all this call spread, risk reversal business. why not simply buy the call? the answer is found in playing a little options versus options. had mike simply bought the 29 strike call, he'd be looking at a loss of about 26%. but mike's options trade cost nothing to put on and can basically be taken off for no loss. why is that? magic, you say? no. it's actually just options and here's why. the value of the options that
mike sold have decreased faster than the value of the call that he bought. so, with all that said, what is the next move for facebook? carter got us in, so, we turn back to carter. carter, what do you see? >> we like it here. acted well today in red tape and stocks unchanged since we started and we stay the course. >> mike, what's your next move here? >> yeah, i think we stick with this, as well. i mean, we do have the two options. they are decaying to offset it. even if we have the stock put to us, it's still at a good discount. $2.40 from where the stock is now, just under 10%. this is one of the places where i don't feel uncomfortable maintaining the long position. >> and dan, you still don't like facebook? >> i do not. i just don't get it. to me -- i've said this before, i think we're going to talk about this company like we talk about myspace in five years or so. i was not impressed yet with home. i think they really have to come up with ways they're going to show, you know, increased user engagement. they are not getting it. to me, i want to stay this
route. i'm actually long some april puts right now in the name and i want to fade it. coming up -- quickly, mike. very quickly. >> this is a company that has growing revenues and it is a stock that seems to have found support here. >> all right, now, for real, coming up. is tesla ready to stall? the stock has been on fire this year but there's some controversy on this desk as to whether the rally can last. it's a no holds barred battle for your money when we come back. [ indistinct shouting ] ♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪
sleek, sexy and very expensive. we're not referring to the "options action" graphics package. that is priceless. we're talking about tesla motors. shares of the luxury automaker have been on a tear. but is the stock still a buy here? let's do a little put up or shut up. dan and mike are going to duke it out. over the fate the stock and perhaps the fate of your money. 60 seconds on the clock. dan gets the first shot. reminder, guys, no filibustering, mike. dan, go ahead. >> i'm the bull here. i wouldn't buy this stock with your money, but i would consider some options strategies to get long exposure. so, to me, this week, the stock had a really interesting week. it gapped up almost 22% on monday, where they said they were going to turn a profit for
the first time in ten years the breakout was on huge volume and it was to all-time highs. really like that action. came in 10% half the move here. and i bought a call spread. i think this thing is going to stay big. 50% short interest and i think it's a very interesting story for the next few months. >> mike? >> all right, i got to tell you, first of all, this is trading ten times as expensive based relative to any other car maker and that is assuming they meet all of their projections. think about this. to get to whatever, the $2.5 billion they think they're going to have to do, even at $100,000 a car, they're going to have to sell 20,000 cars. that's 25% of what porsche does. they just had their record year in 2012. the other thing is, the best reason i compare them to porsche, they're the only ones that have broad margins. average margins in this industry are 3.5 to 6%. they have to crush it on margins and sales. >> michael, you are talking microsoft and i'm talking some fancy thing like apple last year, you know, it's two totally different situations. >> all right, we have to throw it to the judges. so, scott, what do you say? >> they sold five extra cars. i'm a bear.
>> all right. so, mike gets one vote. carter? >> it's a great chart. just broke out. some of the things you cited -- we're buyers. >> it's a tie. that means, what does that mean? that means -- >> 50% short interest, people. come on. >> i call the winner and that is mike. all right. mike, quickly what's the trade? >> yeah, i would just buy the june 40 put spread. spend about $2 for that. bearish bet. >> it will be posted on twitter. >> much like grade school, there's simply no losers here. check out our twitter feed. at cnbc options. we post trades there as well. up next, the final call from the options pits. [ indistinct shouting ] ♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪
[ cows moo ] [ sizzling ] more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade. time for the final call. mike? >> call spreads in pulte. >> carter? >> sell home across the board. >> i want to be long options. >> dan? >> fading yahoo! here. >> i'm melissa lee.